Question

Q1    The manufacturing overhead budget at Polich Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 9,800 direct labor-hours will be required in February. The variable overhead rate is $8.20 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $141,120 per month, which includes depreciation of $18,130. All other fixed manufacturing overhead costs represent current cash flows.

The February cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:

Multiple Choice

• $221,480

• $80,360

• $122,990

• $203,350

Q2    Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow:

• Sales are budgeted at $308,000 for November, $328,000 for December, and $228,000 for January.
• Collections are expected to be 65% in the month of sale and 35% in the month following the sale.
• The cost of goods sold is 80% of sales.
• The company desires to have an ending merchandise inventory at the end of each month equal to 70% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase.
• Other monthly expenses to be paid in cash are $22,900.
• Monthly depreciation is $30,000.
• Ignore taxes.

Balance Sheet October 31
Assets
Cash	$	35,500
Accounts receivable		86,000
Merchandise inventory		172,480
Property, plant and equipment, net of $624,000 accumulated depreciation		923,000
Total assets	$	1,216,980
Liabilities and Stockholders' Equity
Accounts payable	$	257,000
Common stock		758,000
Retained earnings		201,980
Total liabilities and stockholders' equity	$	1,216,980

Retained earnings at the end of December would be:

Garrison 16e Rechecks 2017-10-03, 2017-10-31

Multiple Choice

• $199,480

• $254,780

• $201,980

• $223,380

Answer 1

1. D. $203,350

CASH DISBUREMENT = VARIABLE OVERHEAD + FIXED OVERHEAD (EXCLUDING DEPRECIATION)

= $8.2 * 9800 HOURS (+) $122,990 (141,120 - 18,130)

= $203,350

2. D. $223,380

RETAINED EARNINGS AT DECEMBER = RETAINED EARNINGS AT OCTOBER + NET INCOME

= $201,980 + $21,400

= 223,380

NOTE: NET INCOME

SALES (308,000 + 328000) $636,000

LESS COST (636000 * 80%) ($508800)

LESS MONTHLY EXPENSES ( 22900 + 22900) ($45800)

LESS DEPRECIATION ( 30000 + 30000) ($60,000)

NET INCOME $21,400